German car scrappage scheme extended to meet demand

Monday 6 April 2009 19.01 EDT
First published on Monday 6 April 2009 19.01 EDT

Germany's car scrappage scheme has been so successful it has been extended until the end of the year after attracting 1.2m applications.

The initiative offers buyers of new, fuel-efficient cars a €2,500 (£2,273) discount if they scrap a vehicle more than nine years old.

Consumer demand has been so strong that the original programme has run out. It has attracted 1.2m applications since its introduction on 27 January, according to the German car importers' association, VDIK. About 600,000 vehicles have been bought with the premium, with remaining applications to be reflected in car sales in coming months.

The scheme sent German new car sales soaring 40% in March from a year ago to 401,000, the highest level since 1992. Sales were up 18% over the first quarter, as consumers rushed to buy mainly smaller cars. A Chevrolet Matiz goes for €4,900, including the premium.

Car buyers camped outside showrooms on the night of 30 March, when the government speeded up the process by allowing online applications. Eligible old cars have to be scrapped by the end of the year.

The success of the programme has prompted Berlin to extend it beyond the original €1.5bn cost. It is expected to reach a ceiling of €4-5bn, with a decision to be announced tomorrow. If it is fully taken up, it will increase new car sales in Germany by 2m this year.

Volkswagen has emerged as the biggest winner, with sales of more than 190,000 under the scheme, while Skoda has sold 80,000 cars. VW has decided to continue producing its Polo, which was due to be phased out. Fiat and Suzuki have also seen sales soar.

The German government has backtracked from suggestions that the premium could be halved in the second stage after encountering fierce opposition from VDIK and others. It has decided to extend the full premium until the end of the year.

VDIK spokesman Thomas Boehm pointed out the €2,500 bonus amounts to a tenth of the average price of a new car. For smaller cars, this figure rises to 16-17%. Industry executives have also argued that the scrappage bonus is virtually self-financing, with sales likely to boost VAT income by €1.3bn - or €2,000 per car purchase.

After similar schemes encouraging motorists to trade in their car for a greener model, Italian car sales increased for the first time in a year, while French sales rose by 8.1% and declines slowed in Spain. But not all carmakers are in favour: Mercedes-Benz warned that there could be a sales slump once the initiative comes to an end.